The gap between the interest rates banks offer on customer deposits and the rates they charge for lending remains notably wide, according to recent data from the Bank of Ghana. The summary of economic and financial data reveals that while the average interest rate on savings has stayed at 5% from January to June, average lending rates have been significantly higher, starting at 32.94% in January and slightly decreasing to 31.1% in June.
This disparity, known as the spread between savings and lending rates, has been a topic of discussion for many years. Economists have long criticized financial institutions for offering minimal returns on deposits while charging exorbitant rates for loans to the same customers.
The widening gap between these rates was a key reason for introducing the Ghana Reference Rate (GRR), aimed at curbing arbitrary loan pricing. However, while the GRR has provided some guidance in setting loan interest rates, it has not succeeded in narrowing the spread between savings and lending rates.
Bankers argue that the high lending rates are due to their sources of funds for lending not being regular deposits. They explain that regular deposits are frequently withdrawn and therefore unsuitable for longer-term lending. Instead, lending institutions often rely on funds from institutions and wealthy individuals, referred to as wholesale lenders. These lenders deposit their funds at rates close to or even higher than the 91-day treasury bill rate. As a result, the actual cost of funds for banks is around or higher than treasury bill rates. When risk and profit margins are added, lending rates reach the high levels observed. Bankers contend that unless their true cost of funds decreases, lending rates will continue to be significantly higher than savings rates.
The high lending rates contribute to a prohibitively high cost of doing business, causing locally produced goods to experience higher inflation than imported counterparts, despite high duties and freight charges.
